GIEK has issued a guarantee of about $56m against the $72m loan from
KfW, which is another major provider of export credit to shipping.

The amount of equipment to be bought from Norway’s Clean Marine was not
disclosed, but Singapore-based Quantum Pacific is clearly ordering a large
number of scrubbers to fit on its fleet of about 125 ships covering a wide
range of vessel types and sizes.

Cyril Ducau, chief executive of sister company Eastern Pacific Shipping,
said in a statement to TradeWinds that fitting scrubbers was part of both
companies’ strong commitment to environmental and social policies. His company
manages Quantum Pacific’s vessels.

“The backing of GIEK on the loan facility
involved a thorough approval process, which validated our decision to use
exhaust-gas cleaning systems. We are happy to have taken this proactive
approach to comply with IMO 2020.”

Cyril Ducau, Eastern Pacific Shipping CEO

“The backing of GIEK on the loan facility involved a thorough approval
process, which validated our decision to use exhaust-gas cleaning systems,”
he said. “We are happy to have taken this proactive approach to comply
with IMO 2020.”

Tough nut to
crack

Scrubber financing has been highlighted as a tough nut for shipowners to
crack. Hugh Baker, a former HSH Nordbank lender who is now chief financial officer
at Scorpio Bulkers, described it last month as one of the more difficult
financing issues he had to deal with in his career.

The main problem is that scrubbers, once installed, essentially become a
part of the ship. This makes it difficult for lenders to achieve the desired
security to extend financing if they are not the existing ship-mortgage
lenders. The scrubber financier would want a second mortgage on the ship, and
the current financiers are unlikely to allow it.

That is where export credit guarantees can come into play, said Solveig
Froland, GIEK shipping, yards and offshore director, and senior vice president
Anders Gerlach Nielsen while in Singapore for the contract signing.

GIEK is a public-sector enterprise under Norway’s Ministry of Trade,
Industry and Fisheries. Its purpose is to promote Norwegian exports and
investments abroad through the issue of guarantees, which are issued on behalf
of the Norwegian government.

GIEK can accept up to 85% financing of the export contracts’ value and
can cover up to 90% of the loan. The most likely coverage would be 70% to 80%.
The residual risk is covered by a commercial bank.

Norwegian content must account for at least 30% of the amount of
Norwegian supplier contracts.

Some financiers have argued that export credit agency (ECA)-supported
financing can be time consuming, strongly focused on top credits and likely not
available to everyone.

Froland and Gerlach Nielsen readily admit that it is not for everyone.

“It is not that efficient to arrange ECA-financing transactions if it is
only for a few scrubbers,” said Froland, who also stressed that GIEK’s
evaluation criteria is just as stringent as that of lending banks.

“It is much easier to do it for large contracts like the one we have
just entered into with Quantum Pacific.

“We do not select clients based on the perspective of customer strategy.
We use the same processes banks do for assessing customer risk and compliance.
We work in collaboration with the banks so we share the security and share the
same terms.”

Taking a
commission

GIEK earns a commission for providing guarantees and, while this may add
to financing costs, Froland argues that the premium can be worth it in the long
run as having a Norwegian AAA low-risk rating is reflected in the credit pricing.

The Quantum Pacific deal is the first large scrubber transaction that
GIEK has been involved in, although it has received a lot of enquiries and had
serious discussions with a number of parties. It expects to tie up more such
deals in the near future.

“GIEK’s involvement in the scrubber market has
been very limited until now. We think this means that a lot of shipping
companies are doing their own financing. I would guess that half have been
funded by the companies themselves.””

Anders Gerlach Nielsen

“GIEK’s involvement in the scrubber market has been very limited until
now,” Nielsen said. “We think this means that a lot of shipping
companies are doing their own financing. I would guess that half have been
funded by the companies themselves.”

A clear trend that GIEK has noticed is that most of the interest being
shown for scrubber financing has come from an international range of owners of
large vessels that perform long voyages. Most are tanker and containership
operators.

Debate still
raging

The debate still rages about whether scrubbers or low-sulphur fuel will
be the best way forward from both cost and environmental perspectives. There
are also differences of opinion about the merits of open-loop, closed-loop and
hybrid systems. Froland says it is not GIEK’s role to decide which is best.

“We are client-led,” she said. “It is up to the buyers to
decide what they want. We do not have the technical competence to figure out
what is the best choice.”

Eastern Pacific’s Ducau is clearly in the growing scrubber camp.

“While other companies took a wait-and-see approach towards
environmental regulations, we worked tirelessly to ensure exhaust-gas cleaning
systems were our best option to reduce the environmental impact wherever we
operate,” he said.

LNG-powered ships open other avenues for GIEK in traditional shipping.

Norway’s leading role in the technical development of LNG propulsion
systems for commercial vessels should see GIEK further expand its presence in
the ship-finance space as an increasing number of owners eye the possibility of
ordering LNG-powered ships.

“LNG will add on to our activities and open up more space for our
participation with traditional shipping segments,” Nielsen said.

GIEK has been active in the LNG space but mainly through the oil and gas
sector. This is a high-value segment that it clearly likes.

On the shipping front, the agency has already participated in the
financing of propulsion and tank systems for expedition cruiseships being built
in Norway, and it expects this involvement will increase as exports of LNG fuel
systems from Norway rise.